IndustryWeb Startups Will Move to In-App Purchasing on the Model of iOS

As the Web becomes more and more commoditized, I predict that, with in-app purchasing sweeping across iOS, selling services on the Web will slowly move to the same approach. The only real way to make money on iOS nowadays is to give away a great product and then entice your users to buy in-app enhancements that will better their experience. You will begin to see this same behavior for Web services as time goes on.

iOS in-app purchasing is most closely equivalent to the Web’s freemium model system, where you offer a free service that’s more restrictive than a paid service you have ready to offer on demand, hoping that customers will upgrade when they’ve maxed out what they can do without paying. The major difference is that the Web’s freemium model has a recurring fee associated with the paid plan and in-app purchasing is a one-time fee to enhance a certain feature. The best example of in-app purchasing is buying gems in the wildly popular Clash of Clans. As a player of CoC, you can use Gems to better your base and defend against opponents. That company’s use of in-app purchasing was so successful that they just sold 51% of their company to Softbank for $1.5 billion.

Recurring revenue right now is the best way to build a sustainable business on the Web, but as in-app purchasing becomes more popular and more a part of our purchasing behavior, you may be able to make more money implementing a comparable system in your Web app, or opting for a mixture of recurring revenue and in-app purchasing.

I love the idea of being able to power up my experience using a service with a one-time charge. I can see it going something like this:

I’ve come here to get feature X. Feature X is free and offers everything I intended to get out of using this service.

The service then gives me feature X for free and prompts me that I can add feature Y if I pay a one-time fee of Z dollars. It may even be a business service where I have multiple users and now I’m being prompted to get features X and Y for all of my users. I like feature Y so much that I pay them Z for each of the users in the system.

It’s only somewhat new in iOS, but I don’t know any examples of it currently happening with Software-as-a-Service Web startups. If you can derive real additional value with feature Y, and feature X is great as well, then I believe that you can convince a lot of people to pay an in-web app fee. It may be especially intriguing to people who are wary of a recurring payment. Business models have always fascinated me, and this is something I may experiment with fairly soon.